CG14740 - Assets disposed of: series of transactions: approach

It will not be possible to identify a series of linked transactions until the second transaction has taken place. The gain on the first transaction will therefore be computed initially on normal rules. When the second transaction has taken place, you will have to rework the computation in respect of the first transaction to apply the provisions of TCGA92/S19.

If the series involves more than two transactions, on the occasion of each later transaction the number of assets disposed of will change. As a result, after each transaction has taken place, it is necessary to

  • establish the aggregate market value of the revised number of assets at the date of each transaction in the series (within the six year period ending on the date of the latest transaction) and
  • rework the computations in respect of earlier disposals (within that six year period) to take account of the revised aggregate market values.

This example illustrates the operation of TCGA92/S19.

In April 2003 Mrs A acquired 100 shares in an unquoted company for £100 per share. She makes the following transfers to her daughter:

1 March 2011 40 shares
1 October 2014 40 shares
1 July 2017 20 shares

For the purposes of this example, the market values of various quantities of shares in the company are:

Date Number of shares      
  20 40 60 80
March 2011 £ 10,000 £ 60,000    
October 2014 £ 12,000 £ 36,000 £ 80,000  
July 2017 £ 10,000   £ 57,000  

The 40 shares transferred on 1 March 2011 are deemed to pass at market value, TCGA92/S17 and TCGA92/S18:

  Deemed consideration   10,000
LESS Cost 40 x £100 4,000
       
       
  CHARGEABLE GAIN   6,000

The transfer of 40 shares on 1 October 2014 creates a series of linked transactions and TCGA92/S19 comes into operation.

It is necessary to reconsider the 2010-11 computation

Compare the original market value adopted £10,000

with the appropriate portion ((that is 40 shares) / (80 shares))

of the aggregate market value of 80 shares as at 1 Mar 2011 40/80 x £60,000 = £ 30,000    
The latter value is greater and so the 2010-11 computation must be reworked:      
  Deemed consideration   £ 30,000
LESS Cost 40 x £ 100 £ 4,000
       
       
  Chargeable Gain   £ 26,000

For the transfer in 2014-15

COMPARE the value which would otherwise apply

(that is, the original market value of 40 shares

as at 1 October 2014) = £12,000

with the appropriate portion ((that is 40 shares) / (80 shares))

of the aggregate market value of 80 shares

as at 1 October 2014 ; 40/80 x £80,000 = £40,000

The latter value is greater and so it is substituted as the deemed consideration;

  Deemed consideration   £ 40,000
LESS Cost 40 x £100 £ 4,000
       
       
  CHARGEABLE GAIN   £ 36,000

On the transfer of 20 shares in 2017-18, the provisions of Section 19 apply, but only in relation to the transfers on 1 October 2014 and June 2017. The transfer on 1 Mar 2011 is disregarded because it was more than six years before the latest transaction.

It is necessary to reconsider the 2014-15 computation:

COMPARE the value adopted following the

previous application of Section 19 on

October 2014 = £40,000

with the appropriate portion ((that is 40 shares) / (60 shares))

of the aggregate market value of 60 shares

as at 1 October 2014; 40/60 x £36,000 = £24,000

The latter value is not greater than the former and so it is not necessary to recompute the 2014-15 capital gain.

For the transfer in 2017-18

COMPARE the value which would otherwise

apply (that is, the original market value of

shares as at 1 July 2017= £10,000

with the appropriate portion ((that is 20 shares) / (60 shares))

of the aggregate market value of 60 shares

as at 1 July 2017 ; 20/60 x £57,000 = £19,000

The latter value is greater and so it is substituted

as the deemed consideration;

  Deemed consideration   £ 19,000
LESS Cost 20 x £100 £ 2,000
  Chargeable Gain   £ 17,000